Gujarat High Court
Prabhudayal Devandas Khatri vs State Of Gujarat on 11 May, 2018
Author: Sonia Gokani
Bench: Sonia Gokani
R/CR.A/1650/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL APPEAL NO. 1650 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS JUSTICE SONIA GOKANI
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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PRABHUDAYAL DEVANDAS KHATRI
Versus
STATE OF GUJARAT
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Appearance:
MR ADIL R MIRZA(2488) for the PETITIONER(s) No. 1
MR.CHIRAG B UPADHYAY(6735) for the RESPONDENT(s) No. 2
PUBLIC PROSECUTOR(2) for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MS JUSTICE SONIA GOKANI
Date : 11/05/2018
ORAL JUDGMENT
1. The appellant, herein, is the original complainant in Criminal Case No. 2048 of 2015, filed before the Court of the learned Chief Judicial Magistrate, Valsad, against the original accused-Respondent No.2, herein.
2. The facts which are necessary for adjudication of this matter are as follows:
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Respondent No.2 and the present
appellant, according to the appellant, were good friends, and therefore, the appellant had lent an amount of Rs.3/- lakh to the Respondent No.2 with an understanding that the same shall be returned to him whtin a period of six months. Respondent No.2, Since, had needed the said amount for his business purpose, the same had been lent to him. After six months, when Respondent No.2 could not fulfill his promise, the complainant contacted him and demanded the amount back. Respondent No.2, therefore, issued a cheque for Rs.2,50/- lakh bearing No. 537515, drawn on HDFC Bank, Tithal Road, Valsad, towards the part payment. When the same was deposited with the Bank on 18.07.2012, it was dishonoured on account of "insufficiency of funds" and an endorsement to that effect was received from the Bank concerned.
When Respondent No.2 was contacted, he promised to pay the amount to the appellant after selling a plot that he owned and which he intended to sell within a period of six months. Respondent No.2, thereby, assured the appellant of payment of the said amount. However, when Respondent No.2 could not honour such a promise even after lapse of two years, the appellant once again made a request.
Page 2 of 46R/CR.A/1650/2017 JUDGMENT 2.1 Respondent No.2, therefore, once again
issued a cheque for a sum of Rs.3/- lakh bearing No. 5375509, Dated: 17.03.2015, drawn on HDFC Bank, Valsad. It was deposited on the very same day with the Axis Bank and the same was dishonoured. The remarks received on 19.03.2015 stated that the "Account Closed".
2.2 The appellant, therefore, issued a notice to Respondent No.2 through his advocate on 15.04.2015, which was received by him on 16.04.2015. However, neither the payment was made nor any reply was given to the same.
2.3 The complainant, hence, registered the Criminal Case No. 2048 of 2015 before the Court of the 2nd Chief Judicial Magistrate, Valsad, and the Court below vide order dated 16.03.2017, after allowing the parties to adduce the evidence, acquitted respondent No.2. Hence, the present appeal.
3. Aggrieved appellant-the original complainant is before this Court against the said judgment and order dated 16.03.2017, raising the ground that the judgment and order passed by the Court below is illegal, which does not take care of the legal presumptions made available under Sections 118 and 139 of the NI Act. It is the Page 3 of 46 R/CR.A/1650/2017 JUDGMENT grievance on the part of the appellant that he is serving with a monthly remuneration of Rs.18,000/- to Rs.20,000/-, and therefore, the trial Court could not have held that the appellant could not have lent the amount of Rs.3/- lakh to Respondent No.2. It is the source of income which has been questioned by the trial Court. It is, further, the grievance on the part of the appellant that once it is established of him having lent the amount, it was for the respondent No.2 to rebut such a presumption. He urged that neither the signature was questioned nor had he replied to the notice and yet, disregarding the endorsement of the Bank, the trial Court has given the benefit by holding in favour of Respondent No.2. It is further the case of the appellant that the serial numbers of the chques, which were issued in the year 2012 and 2015, being 537515 and 537509, it had weighed with the trial Court in holding that the same must have been given towards the security and not towards the legally existing debt. The trial Court has emphasized on the insignificant aspects, according to the appellant, and what was required to be examined by it was whether the cheque had the signature of Respondent No.2 and whether, in any manner, he had questioned such signatures. The witness, Dharmesh Dangi, also had deposed in favour of the appellant, which has Page 4 of 46 R/CR.A/1650/2017 JUDGMENT been overlooked by the trial Court.
4. This Court has heard the learned Advocate, Mr. Mirza, for the appellant, who has urged that neither in the reply to the notice or otherwise, at any stage, any dispute is raised with regard to the signatures by Respondent No.2. The appellant is a Journalist with the monthly remuneration of Rs.18,000/- to Rs.20,000/-. Therefore, it is not difficult for anyone earning such a handsome amount every month to lend an amount of Rs.3/- lakh. Therefore, the capability of the appellant to lend the amount could not have been questioned. He also emphasized that even if the cheques were given towards the security, the fact remains that the amount lent to Respondent No.2 has not been questioned by him, and therefore, both the cheques having been dishonoured, the benefit could not have gone to Respondent No.2.
5. Learned Advocate, Mr. Chirag Upadhyay, appearing for Respondent No.2-original accused, has urged that what is fundamentally important and required is that the appellant needs to prove his capability to lend the money. Moreover, when specifically questioned in the cross-examination, with regard to his capability, he failed to adduce necessary evidence in that regard. He Page 5 of 46 R/CR.A/1650/2017 JUDGMENT also, further, argued that both the cheques were given towards the security and they have been misused. As, otherwise, it cannot happen that the serial number of the cheque issued in the year 2012 would with 515 numbers, whereas, the second cheque which had been issued in the year 2015 would end with the number 509. It is, further, his argument that in the year 2012, the cheque given was for the amount of Rs.2.5/- lakh, which was not the total amount, which is said to have been borrowed by Respondent No.2 and in the year 2015, the amount gets enhanced to Rs.3/- lakh and that also poses a serious question. He urged that the legal presumptions, which is available under the NI Act, have been duly discharged, as Respondent No. 2 had examined, himself, on oath. According to Respondent No.2, his father was frequently borrowing money from the complainant, who was lending money by charging heavy interest, i.e. if an amount of Rs.50,000/- had been taken or had been borrowed, the appellant would deduct Rs.8,000/- towards the interest and would give only Rs.42,000/- to the borrower. Further, the aforesaid amount would need to be returned in 100 days by giving Rs.500/- per day. There were also four blank cheques with a signed stamp paper. He needed in the year 2012 money for his business.
His father had gone to Goa for marriage. He,
therefore, borrowed Rs.50,000/- from the
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appellant in the year 2012, when his father was away at Goa, and the appellant had already deducted the amount of interest. He also had issued two cheques in favour of the complainant in the year 2012, as cheque book also was of the year 2012. He merely had signed those cheques and in the year 2013, his account also had been closed. The appellant, therefore, has committed a fraud upon Respondent No.2.
6. He has sought to rely on the decision in 'DILAWARSINH MODUBHA ZALA VS. STATE OF GUJARAT', 2012 (2) GCD 1088. He, therefore, has urged before this Court that once having discharged the legal burden by way of rebuttable presumption, Respondent No.2 has succeeded in dislodging the proof, and therefore also, this appeal must fail.
7. At the outset, law on the subject deserves discussion, as held by the Apex Court in 'VIJAY VS. LAXMAN & ANOTHER', (2013) 3 SCC 86, that the complainant when reasonably proves the legally existing and legally enforceable debt, it is for the respondent to dislodge the same by way of rebuttable presumption.
"9. Having heard the learned counsels for the contesting parties in the light of the evidence led by them, we find substance in the plea urged on behalf of the complainant-Page 7 of 46
R/CR.A/1650/2017 JUDGMENT appellant to the extent that in spite of the admitted signature of the respondent-accused on the cheque, it was not available to the respondent-accused to deny the fact that he had not issued the cheque in favour of the complainant for once the signature on the cheque is admitted and the same had been returned on account of insufficient funds, the offence under Section 138 of the Act will clearly be held to have been made out and it was not open for the respondent- accused to urge that although the cheque had been dishonoured, no offence under the Act is made out. Reliance placed by learned counsel for the complainant-appellant on the authority of this Court in the matter of K.N. Beena vs. Muniyappan And Anr.[1] adds sufficient weight to the plea of the complainant- appellant that the burden of proving the consideration for dishonour of the cheque is not on the complainant-appellant, but the burden of proving that a cheque had not been issued for discharge of a lawful debt or a liability is on the accused and if he fails to discharge such burden, he is liable to be convicted for the offence under the Act. Thus, the contention of the counsel for the appellant that it is the respondent-accused (since acquitted) who should have discharged the burden that the cheque was given merely by way of security, lay upon the Respondent/ accused to establish that the cheque was not meant to be encashed by the complainant since respondent had already supplied the milk towards Page 8 of 46 R/CR.A/1650/2017 JUDGMENT the amount. But then the question remains whether the High Court was justified in holding that the respondent had succeeded in proving his case that the cheque was merely by way of security deposit which should not have been encashed in the facts and circumstances of the case since inaction to do so was bound to result into conviction and sentence of the Respondent/Accused.
10. It is undoubtedly true that when a cheque is issued by a person who has signed on the cheque and the complainant reasonably discharges the burden that the cheque had been issued towards a lawful payment, it is for the accused to discharge the burden under Section 118 and 139 of the N.I. Act that the cheque had not been issued towards discharge of a legal debt but was issued by way of security or any other reason on account of some business transaction or was obtained unlawfully. The purpose of the N.I. Act is clearly to provide a speedy remedy to curb and to keep check on the economic offence of duping or cheating a person to whom a cheque is issued towards discharge of a debt and if the complainant reasonably discharges the burden that the payment was towards a lawful debt, it is not open for the accused/signatory of the cheque to set up a defence that although the cheque had been signed by him, which had bounced, the same would not constitute an offence.Page 9 of 46
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11. However, the Negotiable
Instruments Act incorporates two presumptions in this regard: one containing in Section 118 of the Act and other in Section 139 thereof. Section 118 (a) reads as under:-
"118. Presumption as to negotiable instruments.--Until the contrary is proved, the following presumptions shall be made--
1. of consideration: that every negotiable instrument was made or drawn for consideration, and that every such instrument when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;" Section 139 of the Act reads as under:-
"139. Presumption in favour of holder.-It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque, of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability."
12. While dealing with the aforesaid two presumptions, learned Judges of this Court in the matter of P. Venugopal vs. Madan P. Sarathi[2] had been pleased to hold that under Sections 139, 118 (a) and 138 of the N.I. Act existence of debt or other liabilities has to be proved in the first instance by the complainant but thereafter the burden of proving to the contrary shifts to the accused. Thus, the plea that the instrument/cheque had been obtained from its lawful owner or from any Page 10 of 46 R/CR.A/1650/2017 JUDGMENT person in lawful custody thereof by means of an offence or fraud or had been obtained from the maker or acceptor thereof by means of an offence or fraud or for unlawful consideration, the burden of disproving that the holder is a holder in due course lies upon him. Hence, this Court observed therein, that indisputably, the initial burden was on the complainant but the presumption raised in favour of the holder of the cheque must be kept confined to the matters covered thereby. Thereafter, the presumption raised does not extend to the extent that the cheque was not issued for the discharge of any debt or liability which is not required to be proved by the complainant as this is essentially a question of fact and it is the defence which has to prove that the cheque was not issued towards discharge of a lawful debt."
7.1 In case of 'RANGAPPA VS. SRI MOHAN', (2010) 11 SCC 441, where, the Apex Court, while considering the issue of rebuttable and statutory presumption and interpretation of Sections 118, 138 and 139 of the NI Act, held thus:
8. In the course of the proceedings before this Court, the contentions related to the proper interpretation of Sections 118(a), 138 and 139 of the Act. Before addressing them, it would be useful to quote the language of the relevant provisions :Page 11 of 46
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118. Presumptions as to negotiable instruments. - Until the contrary is proved, the following presumptions shall be made : (a) of consideration : that every negotiable instrument was made or drawn for consideration, and that every such instrument when it has been accepted, endorsed, negotiated or transferred, was accepted, endorsed, negotiated or transferred for consideration;
138. Dishonour of cheque for insufficiency, etc., of funds in the account. -Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless-
(a) the cheque has been presented to the bank within a period of six months from the date on which it is Page 12 of 46 R/CR.A/1650/2017 JUDGMENT drawn or within the period of its validity, whichever is earlier.
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation. - For the purposes of this section, 'debt or other liability' means a legally enforceable debt or other liability.
139. Presumption in favour of holder. -It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque, of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt, or other liability.
9. Ordinarily in cheque bouncing cases, what the courts have to consider is whether the ingredients of the offence enumerated in Section 138 of the Act have been met and if so, whether the accused was able to rebut the statutory presumption Page 13 of 46 R/CR.A/1650/2017 JUDGMENT contemplated by Section 139 of the Act. With respect to the facts of the present case, it must be clarified that contrary to the trial court's finding, Section 138 of the Act can indeed be attracted when a cheque is dishonoured on account of 'stop payment' instructions sent by the accused to his bank in respect of a post-dated cheque, irrespective of insufficiency of funds in the account. This position was clarified by this Court in Goa Plast (Pvt.) Ltd. v. Chico Ursula D'Souza, (2003) 3 SCC 232 : (AIR 2003 SC 2035), wherein it was held :
"Chapter XVII containing Sections 138 to 142 was introduced in the Act by Act 66 of 1988 with the object of inculcating faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions. These provisions were intended to discourage people from not honouring their commitments by way of payment through cheques. The court should lean in favour of an interpretation which serves the object of the statute. A post-dated cheque will lose its credibility and acceptability if its payment can be stopped routinely. The purpose of a postdated cheque is to provide some accommodation to the drawer of the cheque. Therefore, it is all the more necessary that the drawer of the cheque should not be allowed to abuse the accommodation given to him by a creditor by way of acceptance of a post-dated cheque. In view of Section 139, it has to be presumed that a cheque is issued in discharge Page 14 of 46 R/CR.A/1650/2017 JUDGMENT of any debt or other liability. The presumption can be rebutted by adducing evidence and the burden of proof is on the person who wants to rebut the presumption. This presumption coupled with the object of Chapter XVII of the Act leads to the conclusion that by countermanding payment of a post- dated cheque, a party should not be allowed to get away from the penal provision of Section 138. A contrary view would render S. 138 a dead letter and will provide a handle to persons trying to avoid payment under legal obligations undertaken by them through their own acts which in other words can be said to be taking advantage of one's own wrong...."
10. It has been contended on behalf of the appellant-accused that the presumption mandated by Section 139 of the Act does not extend to the existence of a legally enforceable debt or liability and that the same stood rebutted in this case, keeping in mind the discrepancies in the complainant's version. It was reasoned that it is open to the accused to rely on the materials produced by the complainant for disproving the existence of a legally enforceable debt or liability. It has been contended that since the complainant did not conclusively show whether a debt was owed to him in respect of a hand loan or in relation to expenditure incurred during the construction of the accused's house, the existence of a legally enforceable debt or Page 15 of 46 R/CR.A/1650/2017 JUDGMENT liability had not been shown, thereby creating a probable defence for the accused. Counsel appearing for the appellant- accused has relied on a decision given by a division bench of this Court in Krishna Janardhan Bhat v. Dattatraya G. Hegde, (2008) 4 SCC 54 : (AIR 2008 SC 1325), the operative observations from which are reproduced below (S.B. Sinha, J. at Paras. 29-32, 34 and 45) :
"29. Section 138 of the Act has three ingredients viz. :
(i) that there is a legally enforceable debt
(ii) that the cheque was drawn from the account of bank for discharge in whole or in part of any debt or other liability which presupposes a legally enforceable debt; and
(iii) that the cheque so issued had been returned due to insufficiency of funds.
30. The proviso appended to the said section provides for compliance with legal requirements before a complaint petition can be acted upon by a court of law. Section 139 of the Act merely raises a presumption in regard to the second aspect of the matter. Existence of legally recoverable debt is not a matter of presumption under Section 139 of the Act. It merely raises a presumption in favour of a holder of the cheque that the same has been issued for discharge of any debt or other liability.
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31. The courts below, as noticed herein before, proceeded on the basis that Section 139 raises a presumption in regard to existence of a debt also. The courts below, in our opinion, committed a serious error in proceeding on the basis that for proving the defence the accused is required to step into the witness box and unless he does so he would not be discharging his burden. Such an approach on the part of the courts, we feel, is not correct.
32. An accused for discharging the burden of proof placed upon him under a statute need not examine himself. He may discharge his burden on the basis of the materials already brought on record. An accused has a constitutional right to maintain silence. Standard of proof on the part of the accused and that of the prosecution in a criminal case is different....
34. Furthermore, whereas prosecution must prove the guilt of an accused beyond all reasonable doubt, the standard of proof so as to prove a defence on the part of the accused is 'preponderance of probabilities'. Inference of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which he relies."
(Emphasis supplied) Specifically in relation to the nature of the presumption Page 17 of 46 R/CR.A/1650/2017 JUDGMENT contemplated by Section 139 of the Act, it was observed;
"45. We are not oblivious of the fact that the said provision has been inserted to regulate the growing business, trade; commerce and industrial activities of the country and the strict liability to promote greater vigilance in financial matters and to safeguard the faith of the creditor in the drawer of the cheque which is essential to the economic life of a developing country like India. This however, shall not mean that the courts shall put a blind eye to the ground realities. Statute mandates raising of presumption but it stops at that. It does not say how presumption drawn should be held to have been rebutted. Other important principles of legal jurisprudence, namely, presumption of innocence as a human right and the doctrine of reverse burden introduced by Section 139 should be delicately balanced . Such balancing acts, indisputably would largely depend upon the factual matrix of each case, the materials brought on record and having regard to legal principles governing the same."
(Emphasis supplied)
11. With respect to the decision cited above, counsel appearing for the respondent-claimant has submitted that the observations to the effect that the 'existence of legally recoverable debt is not a matter of presumption under Section 139 of the Act' and that 'it merely Page 18 of 46 R/CR.A/1650/2017 JUDGMENT raises a presumption in favour of a holder of the cheque that the same has been issued for discharge of any debt or other liability' [See Para. 30 in Krishna Janardhan Bhat (supra)] are in conflict with the statutory provisions as well as an established line of precedents of this Court. It will thus be necessary to examine some of the extracts cited by the respondent- claimant. For instance, in Hiten P. Dalal v. Bratindranath Banerjee, (2001) 6 SCC 16 : (AIR 2001 SC 3897), it was held (Ruma Pal, J. at Paras. 22-23) :
"22. Because both Sections 138 and 139 require that the Court 'shall presume' the liability of the drawer of the cheques for the amounts for which the cheques are drawn, ..., it is obligatory on the Court to raise this presumption in every case where the factual basis for the raising of the presumption has been established. It introduces an exception to the general rule as to the burden of proof in criminal cases and shifts the onus on to the accused (...). Such a presumption is a presumption of law, as distinguished from a presumption of fact which describes provisions by which the court may presume a certain state of affairs.
Presumptions are rules of evidence and do not conflict with the presumption of innocence, because by the latter all that is meant is that the prosecution is obliged to prove the case against the accused beyond reasonable doubt. The obligation on Page 19 of 46 R/CR.A/1650/2017 JUDGMENT the prosecution may be discharged with the help of presumptions of law or fact unless the accused adduces evidence showing the reasonable probability of the non-existence of the presumed fact.
23. In other words, provided the facts required to form the basis of a presumption of law exists, the discretion is left with the Court to draw the statutory conclusion, but this does not preclude the person against whom the presumption is drawn from rebutting it and proving the contrary. A fact is said to be proved when, after considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. Therefore, the rebuttal does not have to be conclusively established but such evidence must be adduced before the Court in support of the defence that the Court must either believe the defence to exist or consider its existence to be reasonably probable, the standard of reasonability being that of the prudent man."
(Emphasis supplied)
12. The respondent-claimant has also referred to the decision reported as Mallavarapu Kasivisweswara Rao v. Thadikonda Ramulu Firm and Ors., 2008 (8) SCALE 680 : (AIR 2008 SC 2898), wherein it was observed:
"Under Section 118(a) of the
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Negotiable Instruments Act, the
court is obliged to presume, until the contrary is proved, that the promissory note was made for consideration. It is also a settled position that the initial burden in this regard lies on the defendant to prove the non-existence of consideration by bringing on record such facts and circumstances which would lead the Court to believe the non-existence of the consideration either by direct evidence or by preponderance of probabilities showing that the existence of consideration was improbable, doubtful or illegal...."
This decision then proceeded to cite an extract from the earlier decision in Bharat Barrel and Drum Manufacturing Company v. Amin Chand Pyarelal, (1999) 3 SCC 35 : (AIR 1999 SC 1008) (Para. 12) :
"Upon consideration of various judgments as noted hereinabove, the position of law which emerges is that once execution of the promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by a consideration. Such a presumption is rebuttable. The defendant can prove the non-existence of a consideration by raising a probable defence. If the defendant is proved to have discharged the initial onus of proof showing that the existence of consideration was improbably or doubtful or the same was illegal, the onus would shift to the plaintiff who will be obliged to Page 21 of 46 R/CR.A/1650/2017 JUDGMENT prove it as a matter of fact and upon its failure to prove would disentitle him to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving the non-existence of the consideration can be either direct or by bringing on record the preponderance of probabilities by reference to the circumstances upon which he relies. In such an event, the plaintiff is entitled under law to rely upon all the evidence led in the case including that of the plaintiff as well. In case, where the defendant fails to discharge the initial onus of proof by showing the non- existence of the consideration, the plaintiff would invariably be held entitled to the benefit of presumption arising under Section 118(a) in his favour. The court may not insist upon the defendant to disprove the existence of consideration by leading direct evidence as the existence of negative evidence is neither possible nor contemplated and even if led, is to be seen with a doubt. The bare denial of the passing of the consideration apparently does not appear to be any defence. Something which is probable has to be brought on record for getting the benefit of shifting the onus of proving to the plaintiff. To disprove the presumption, the defendant has to bring on record such facts and circumstances upon consideration of which the court may either believe that the consideration did not exist or its non-existence was so probable that a Page 22 of 46 R/CR.A/1650/2017 JUDGMENT prudent man would, under the circumstances of the case, act upon the plea that it did not exist."
(Emphasis supplied) Interestingly, the very same extract has also been approvingly cited in Krishna Janardhan Bhat (supra).
13. With regard to the facts in the present case, we can also refer to the following observations in M.M.T.C. Ltd. and Anr. v. MedchI Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234 : (AIR 2002 SC 182) (Para. 19) :
"... The authority shows that even when the cheque is dishonoured by reason of stop payment instruction, by virtue of Section 139 the Court has to presume that the cheque was received by the holder for the discharge in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. The accused can thus show that the 'stop payment' instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there was sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for Page 23 of 46 R/CR.A/1650/2017 JUDGMENT encashment, then offence under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. ..."
(Emphasis supplied)
14. In light of these extracts, we are in agreement with the respondent-claimant that the presumption mandated by Section 139 of the Act does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan Bhat (supra) may not be correct. However, this does not in any way cast doubt on the correctness of the decision in that case since it was based on the specific facts and circumstances therein. As noted in the citations, this is of course in the nature of a rebuttable presumption and it is open to the accused to raise a defence wherein the existence of a legally enforceable debt or liability can be contested. However, there can be no doubt that there is an initial presumption which favours the complainant. Section 139 of the Act is an example of a reverse onus clause that has been included in furtherance of the legislative objective of improving the credibility of negotiable instruments. While Section 138 of the Act specifies a strong criminal remedy in relation to the dishonour of cheques, the rebuttable presumption under Section 139 is a device to prevent undue delay in the course of litigation. However, it must be remembered that the offence Page 24 of 46 R/CR.A/1650/2017 JUDGMENT made punishable by Section 138 can be better described as a regulatory offence since the bouncing of a cheque is largely in the nature of a civil wrong whose impact is usually confined to the private parties involved in commercial transactions. In such a scenario, the test of proportionality should guide the construction and interpretation of reverse onus clauses and the accused/defendant cannot be expected to discharge an unduly high standard or proof. In the absence of compelling justifications, reverse onus clauses usually impose an evidentiary burden and not a persuasive burden. Keeping this in view, it is a settled position that when an accused has to rebut the presumption under Section 139, the standard of proof for doing so is that of 'preponderance of probabilities'. Therefore, if the accused is able to raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability, the prosecution can fail. As clarified in the citations, the accused can rely on the materials submitted by the complainant in order to raise such a defence and it is conceivable that in some cases the accused may not need to adduce evidence of his/her own .
15. Coming back to the facts in the present case, we are in agreement with the High Court's view that the accused did not raise a probable defence. As noted earlier, the defence of the loss of a blank cheque was taken up belatedly and Page 25 of 46 R/CR.A/1650/2017 JUDGMENT the accused had mentioned a different date in the 'stop payment' instructions to his bank.
Furthermore, the instructions to
'stop payment' had not even
mentioned that the cheque had been lost. A perusal of the trial record also shows that the accused appeared to be aware of the fact that the cheque was with the complainant. Furthermore, the very fact that the accused had failed to reply to the statutory notice under Section 138 of the Act leads to the inference that there was merit in the complainant's version. Apart from not raising a probable defence, the appellant-accused was not able to contest the existence of a legally enforceable debt or liability. The fact that the accused had made regular payments to the complainant in relation to the construction of his house does not preclude the possibility of the complainant having spent his own money for the same purpose. As per the record of the case, there was a slight discrepancy in the complainant's version, in so far as it was not clear whether the accused had asked for a hand loan to meet the construction-related expenses or whether the complainant had incurred the said expenditure over a period of time . Either way, the complaint discloses the prima facie existence of a legally enforceable debt or liability since the complainant has maintained that his money was used for the construction-expenses. Since the accused did admit that the signature on the cheque was his, the statutory presumption comes into Page 26 of 46 R/CR.A/1650/2017 JUDGMENT play and the same has not been rebutted even with regard to the materials submitted by the complainant.
7.3 In the cross-examination, the appellant had agreed that he often lends amount to his friends, but, that would be restricted to Rs.3000/- to Rs.4000/- only. He denied the suggestion that because Respondent No.2 had borrowed Rs.50,000/- from him and while lending the said amount, he had already taken Rs.10,000/- towards interest and had given only Rs.40,000/- to him. He also denied that, at any time, he lent an amount of Rs.50,000/- to Respondent No.2 and the same needed to be paid within 100 days, by way of paying an amount of Rs.500/- per day. He also refused in his cross-examination that two blank cheques with one stamp paper also had been given towards security. He also had denied his signature in the diary that had been shown. He denied that as per his diary, he had been regularly collecting Rs.500/- per day. He, however, agreed that with the father of the accused, he had close relations and in the year 2011, he had helped him in his business of milk. He reiterated that the amount was to be returned within six months.
Page 27 of 46R/CR.A/1650/2017 JUDGMENT He denied that because of his relationship
with the father of Respondent No.2, he had lent an amount of Rs.50,000/- to Respondent No.2, as was suggested to him during cross- examination.
8. With this, the decision rendered by the trial Court, if, is taken into consideration, it disbelieved the appellant on the ground of his capability to lend an amount of Rs.3/- lakh to Respondent No.2. The trial Court also questioned the truthfulness of his version so far as both the cheques given in the year 2012 and thereafter in the year 2015, respectively for Rs.2.50/- lakh and Rs.3/- lakh and had concluded that these cheques were given towards security. Otherwise, it would not happen that the cheque issued in the year 2012 would have serial number ending with 515, whereas, the cheque issued subsequently in the year 2015 would have serial number ending with 509. The trial Court also felt that otherwise also an attempt on the part of the complainant was not to disclose true facts. The complainant in his deposition before the trial Court had admitted of having monthly remuneration of Rs.18,000/- to Rs.20,000/-. He had extremely good relationship with Respondent No.2, and therefore, he had lent him a sum of Rs.3/- lakh in the year 2012, as Respondent No.2 was in Page 28 of 46 R/CR.A/1650/2017 JUDGMENT extreme need. Money was since to be returned within a period of six months and as Respondent No.2 could not repay the same, the appellant had made a demand and as a part payment towards the same, a cheque drawn on HDFC Bank, Valsad, bearing serial number 537515, for an amount of Rs.2.5/- lakh was given by Respondent No.2 to the appellant, which was dishonored due to insufficient funds. Therefore, Respondent No.2 had issued another cheque drawn on HDFC Bank Limited, Valsad, bearing number 537509, for an amount of Rs.3/-. This too came to be dishonoured due to this account being closed and hence, the complaint.
In absence of any reply to the notice of demand, statutorily issued on dishonor of cheque and with no dispute to the signature of the respondent No.2 on the cheque, it can be held as per the ratio laid down in case of 'VIJAY VS. LAXMAN & ANOTHER' (Supra), that the appellant succeeded in reasonably discharging the burden that the cheque had been issued towards a legal payment.
8.1 In these circumstances, it is for respondent No.2 to discharge the burden that the cheque had not been issued for discharge of a debt or a liability and if he fails to discharge Page 29 of 46 R/CR.A/1650/2017 JUDGMENT that burden, he would be liable to be convicted for the offence under Section 138 of the NI Act.
9. It is not the capacity to lend money, which could not be blown out of proportion as is noticed in many matters and in this case also.
9.1 Indians are known to be saving money even from the meager amount of their earnings. Traditional way of keeping a substantial amount on hand is not unknown in every household.
9.1 In this backdrop, if the facts are examined, the appellant earned RS.18,000/- to Rs.20,000/- per month towards remuneration and therefore, that per se, can not be said to be a disabling ground to lend the sum of Rs.3/- lakh, if a friend or an acquittance needs money. The view taken by the trial Court to hold that the appellant, therefore, would have no capital to lend, is not a view possible nor can the same be vindicated.
9.2 However, the crucial aspect is whether,
respondent No.2 rebutted the presumption and
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thereby establish preponderance and probability that the cheques were not given towards discharge of legally enforceable debt.
9.4 The respondent No.2 mainly had two defences, (1) that the cheques were taken by way of security and not in discharge of liability and (2) the appellant charges heavily the amount of interest and he also had done that in the instant case.
9.5 The law on the point is quite clear, as can be noticed from the decision of the Apex Court in 'INDUS AIRWAYS PRIVATE LIMITED VS. MAGNUM AVIATION PRIVATE LIMITED', (2014) 12 SCC 539, it was a case of dishonour of cheque issued towards advance payment. The appellant purchaser placed two purchase orders with the respondent supplier by issuing two separate cheques towards advance payment. After some time, deal between parties got cancelled as goods were not supplied. The respondent supplier tried to supply goods, but it was refused by the appellant purchaser. Therefore, a complaint under Section 138 of the NI Act was made by the respondent supplier. The trial Court issued summons and it was challenged by the appellant purchaser before the Sessions Court. Issuance of process was quashed by the Sessions Court. However, when the challenge was Page 31 of 46 R/CR.A/1650/2017 JUDGMENT taken to the High Court, it set aside the order passed by the Sessions Court and thereby, the matter came-up for consideration before the Apex Court. The Apex Court observed and held that the explanation appended to Section 138 of the NI Act explains the meaning of the expression 'debt or other liability' for the purpose of Section 138 of the NI Act. This expression means a legally enforceable debt or other liability. Section 138 of the NI Act treats dishonoured cheque as an offence, if the cheque has been issued in discharge of any debt or other liability subsisting on the date of drawl of the cheuqe. The relevant observations read thus:
"7.. Section 138 of the N.I. Act is as follows:
"138. Dishonour of cheque for insufficiency, etc., of funds in the account. - Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any Page 32 of 46 R/CR.A/1650/2017 JUDGMENT other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless -
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation. - For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability."
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8. The interpretation of the expression 'for discharge of any debt or other liability' occurring in Section 138 of the N.I. Act is significant and decisive of the matter.
9. The explanation appended to Section 138 explains the meaning of the expression 'debt or other liability' for the purpose of Section 138. This expression means a legally enforceable debt or other liability. Section 138 treats dishonoured cheque as an offence, if the cheque has been issued in discharge of any debt or other liability. The explanation leaves no manner of doubt that to attract an offence under Section 138, there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque. In other words, drawal of the cheque in discharge of existing or past adjudicated liability is sine qua non for bringing an offence under Section 138. If a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise, and material or goods for which purchase order was placed is not supplied, in our considered view, the cheque cannot be held to have been drawn for an exiting debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability.
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10. In Swastik Coaters[2] , the single Judge of the Andhra Pradesh High Court while considering the explanation to Section 138 held:
"........Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relateable to an enforceable liability or debt and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered. ........"
11. The Gujarat High Court in Shanku Concretes[3] dealing with Section 138 of the N.I. Act held that to attract Section 138 of the N.I. Act, there must be subsisting liability or debt on the date when the cheque was delivered. The very fact that the payment was agreed to some future date and there was no debt or liability on the date of delivery of the cheques would take the case out of the purview of Section 138 of the N.I. Act. While holding so, Gujarat High Court followed a decision of the Madras High Court in Balaji Seafoods[4].
12 In Balaji Seafoods, the Madras High Court held:
"7. Section 138 of the Negotiable Instruments Act makes it clear that where the cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out Page 35 of 46 R/CR.A/1650/2017 JUDGMENT of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence under Section 138 of the Act. The explanation reads that for the purposes of this section, 'debt or other liability' means a legally enforceable debt or liability."
13. The Kerala High Court in Ullas[5] had an occasion to consider Section 138 of the N.I. Act. In that case, the post-dated cheque was issued by the accused along with the order for supply of goods. The supply of goods was not made by the complainant. The accused first instructed the bank to stop payment against the cheque and then requested the complainant not to present the cheque as he had not supplied the goods. The cheque was dishonoured. The single Judge of the Kerala High Court held, ".........Ext.P1 cheque cannot be stated to be one issued in discharge of the liability to the tune of the amount covered by it, which was really issued, as is revealed by Ext. D1, as the price amount for 28 numbers of mixies, which the complainant had not supplied. ....."
14. The reasoning of the Delhi High Page 36 of 46 R/CR.A/1650/2017 JUDGMENT Court in the impugned order is as follows:
"8. If at the time of entering into a contract it is one of the conditions of the contract that the purchaser has to pay the amount in advance then advance payment is a liability of the purchaser. The seller of the items would not have entered into contract unless the advance payment was made to him. A condition of advance payment is normally put by the seller for the reason that the purchaser may not later on retract and refuse to take the goods either manufactured for him or procured for him. Payment of cost of the goods in advance being one of the conditions of the contract becomes liability of the purchaser. The purchaser who had issued the cheque could have been asked to make payment either by draft or in cash. Since giving cheque is a mode of payment like any other mode of payment, it is normally accepted as a payment. The issuance of a cheque at the time of signing such contract has to be considered against a liability as the amount written in the cheque is payable by the person on the date mentioned in the cheque. Where the seller or manufacturer, on the basis of cheques issued, manufactures the goods or procures the goods from outside, and has acted upon the contract, the liability of the purchaser gets fastened, the moment the seller or manufacturer acts upon the contract and procures the goods.Page 37 of 46
R/CR.A/1650/2017 JUDGMENT If for any reason, the seller fails to manufacture the goods or procure the goods it is only under those circumstances that no liability is created. However, where the goods or raw material has been procured for the purchaser by seller or goods have been manufactured by the seller, it cannot be said that the cheques were not issued against the liability. I consider that if the liability is not construed in this manner, the sole purpose of making dishonour of the cheque as an offence stands defeated. The purpose of making or enacting Section 138 of the N.I. Act was to enhance the acceptability of cheque in settlement of commercial transactions, to infuse trust into commercial transactions and to make a cheque as a reliable negotiable instrument and to see that the cheques of business transactions are not dishonoured. The purpose of Negotiable Instrument Act is to make an orderly statement of rules of law relating to negotiable instruments and to ensure that mercantile instruments should be equated with goods passing from one hand to other. The sole purpose of the Act would stand defeated if after placing orders and giving advance payments, the stop payments are issued and orders are cancelled on the ground of pricing of the goods as was done in this case."
15. The above reasoning of the Delhi High Court is clearly flawed inasmuch as it failed to keep in mind the fine distinction between Page 38 of 46 R/CR.A/1650/2017 JUDGMENT civil liability and criminal liability under Section 138 of the N.I. Act. If at the time of entering into a contract, it is one of the conditions of the contract that the purchaser has to pay the amount in advance and there is breach of such condition then purchaser may have to make good the loss that might have occasioned to the seller but that does not create a criminal liability under Section 138. For a criminal liability to be made out under Section 138, there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque. We are unable to accept the view of the Delhi High Court that the issuance of cheque towards advance payment at the time of signing such contract has to be considered as subsisting liability and dishonour of such cheque amounts to an offence under Section 138 of the N.I. Act. The Delhi High Court has traveled beyond the scope of Section 138 of the N.I. Act by holding that the purpose of enacting Section 138 of the N.I. Act would stand defeated if after placing orders and giving advance payments, the instructions for stop payments are issued and orders are cancelled. In what we have discussed above, if a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, in our considered view, the cheque cannot be said to Page 39 of 46 R/CR.A/1650/2017 JUDGMENT have been drawn for an existing debt or liability.
16. In our opinion, the view taken by Andhra Pradesh High Court in Swastik Coaters2, Madras High Court in Balaji Seafoods4, Gujarat High Court in Shanku Concretes3 and Kerala High Court in Ullas5 is the correct view and accords with the scheme of Section 138 of the N.I. Act. The view taken by Delhi High Court is plainly wrong and does not deserve acceptance."
It is, thus, clear that to make out criminal liability under Section 138 of the NI Act, there should be a legally enforceable debt or liability in existence on the date of the drawl of the cheque.
9.6 Yet, another decision on the subject is of this Court in 'DILAWARSINH MODUBHA ZALA VS. STATE OF GUJARAT'(Supra), where, the question of dishonor of cheque was challenged by the complainant on the ground that the cheque was issued by the accused towards repayment of loan, which was returned with the endorsement 'Insufficient Balance'. In absence of any writing in that regard and in absence of any books of accounts produced or maintained on regular basis, it was held by this Court that the cheque was issued towards the amount advanced by the complainant in contravention of the provisions of Page 40 of 46 R/CR.A/1650/2017 JUDGMENT the Money Laundering Act and the duty was cast upon the complainant to prove the advancing of the amount. The Court held that the defence raised by the accused created doubt about existence of a legally enforceable debt. Thus, the complainant was held to have failed in proving the liability of the accused.
9.7 Adverting to the facts of the case on hand, this Court notices that Respondent No.2 had stepped into the witness box and he had disputed seriously giving of the cheque to the complainant. This witness, Zahir Shaikh, had stated that his father had many-a-times taken money from the complainant on interest. If, Rs.50,000/- is taken from him, he would deduct Rs.8,000/- towards interest and would hand over Rs.42,000/- only. He had taken Rs.50,000/- from the complainant, which were to be returned within 100 days and everyday he had to pay Rs.500/- towards interest. He, further, stated that the amount would be lent by the complainant on the condition that he would be issued a signed blank cheque and a stamp paper.
9.8 According to him, in the year 2012, he needed money for his business and as his father was away at Goa, attending a marriage, he had borrowed an amount of Rs.50,000/- from the Page 41 of 46 R/CR.A/1650/2017 JUDGMENT complainant. His father's outstanding dues were of Rs.25,000/-, which was deducted by the complainant from the said amount. He also deducted Rs.8,000/- towards interest and thereby, gave him only Rs.22,000/-. He would note down the amount to be returned and two cheques were given by the accused to the appellant bearing Nos. 537515 and 537509, which were issued in the year 2012 and 2015 respectively. He had asked back the cheques, but, the same were not given and he insisted that after his father completes the payment of interest, the cheques and the stamp papers shall be returned to him.
9.8.1 In the cross-examination, nothing has been asked as his right was closed, as nobody remained present, though, their names were repeatedly called out. However, later on, it was re-opened and there is hardly any cross- examination on the aspect that he was not intimated that the account was closed.
9.9 It is quite apparent from the evidence that has emerged on record that respondent- accused has succeeded in brining on record that the cheques were already lying with the complainant-appellant. Those cheques were given to him towards security. The appellant is often lending money to the family members of the Page 42 of 46 R/CR.A/1650/2017 JUDGMENT accused and others. It also further is revealed that huge amount of interest is being charged by him and that too, in advance towards the security of his sum, he not only takes the writing, but also, the blank cheques, which are taken by way of security. It is also further getting vindicated by the fact that the first cheque issued by the accused was having number 537515, which was prior in point of time, whereas, the subsequent cheque was having number 537509 which had been given on 17.03.2015 for a sum of Rs.3/- lakh. It is quite unlikely that person receives a cheque, at any later point of time, which would be cheque being chronologically prior number. It would normally not happen, if, a person uses cheque book on a regular basis. The cheque given first is 53715 and later on, the cheque issue was 535709. No explanation comes forth for this. Again, without entering into this it can be held that the decision of the Apex Court in 'INDUS AIRWAYS PRIVATE LIMITED VS. MAGNUM AVIATION PRIVATE LIMITED' (Supra) would have applicability mutatis mutandis to the facts of the instant case. The appellant appears to have used the cheques, which he had taken in advance from the respondent-accused.
9.10 The deposition of the witness of the complainant, Dharmesh Dang, also vindicates this aspect, as according to him, when the complaint was made before the Valsad Police Station, the respondent's father had taken Mr. Dang to police Page 43 of 46 R/CR.A/1650/2017 JUDGMENT station, where, he had agreed to give this amount after plot owned by him would be sold off in about six months' time. However, when nothing happened, according to this witness, respondent- accused and his father had taken him to the house of the appellant and in his presence, the cheques had been issued of HDFC Bank, Valsad, bearing number 537509 and 537515 on 17.03.2015.
9.11 This witness, in his cross-examination, has not stood his ground. He agreed that there was no written compromise was arrived at before police. He also agreed that the amount of cheque was filled-in by the respondent-accused. He answered that it was the father of respondent- accused, who had given the cheque and he is not sure, as to what was the amount. No one would remember the date and cheque number. He is a Member of Valsad Municipal Corporation from Ward No.6. He is in know of the complainant, who is a journalist and who frequently used to go to the police station for his work. He denied, of course, that he is to frequently meet journalists for his work. This deposition not only inspire much confidence because he being a Member of the Valsad Municipal Corporation, his connection with the appellant and the obligation of the appellant also cannot be ruled out. Without going into that surmise, it would be sufficient to note that for Page 44 of 46 R/CR.A/1650/2017 JUDGMENT any obligation of the respondent, although, it was initially stated that respondent, himself, had filled-in the cheque and all the details, this witness later on stated that it was father of respondent-accused, who had filled-in the details in the cheque in his presence. He had no clue about the entire transaction.
9.12 With the preponderance and probabilities, respondent-accused, in the opinion of this Court, has succeeded in dislodging the proof which had been given. When it is clearly established that these cheuqes were given much before the liability actually arose, even without closing the right of the appellant of taking appropriate actions for his outstanding dues, it can be said that any legally enforceable debt or liability, the appellant has failed to establish. In other words, it can also be said that respondent has succeeded in dislodging the proof, since, the presumption is rebuttable and he could rebut the same under the law.
10. Resultantly, this appeal fails and is dismissed. The judgment and order passed in Criminal Case No. 2048 of 2015, by the Court of the learned 2nd Addl. Chief Judicial Magistrate, Valsad, Dated: 16.03.2017, acquitting Respondent- accused stands confirmed. No order as to costs.
Page 45 of 46R/CR.A/1650/2017 JUDGMENT R&P, if any received, be sent back to the trial Court concerned, forthwith.
(SONIA GOKANI, J) UMESH/-
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